eSignature Legitimateness for Assignment of Intellectual Property in United States

How to eSign a document: e-signature legitimateness for Assignment of intellectual property in United States

Today, I was asked the same question twice. And so, it's time to make a video. And the question was, "Hey, do I assign my Patents and Trademarks to an entity, to an LLC or a corporation. And the answer depends on a lot of factors. So, the most important being, "Are you the inventor or are you an investor or some non-inventor who's participating with the patent holder or the owner of the intellectual property?" So, let's go over these, and at the very end, I'm going to show you why it's so important to get an attorney involved in this decision for you. So, first, let's say that you're the inventor, should you assign your invention and your Patent/Trademarks to an entity? Well, the reasons why you might choose to do so are that it's easier to raise money. Most investors to write the check to you will insist that there's an entity out there that actually owns the intellectual property, and then what they do is they invest into that entity which has some other forms of agreements with you, and they want the money channel through an entity so that would -- again if you're an inventor, that's one reason why you might want to assign the intellectual property to a corporation or entity. There's also a second layer of consideration that people discuss; however, I don't think it's terribly relevant, and that's the idea of Corporate Insulation from Liabilities. Well, if you're the inventor, as far as I know, there has never been a lawsuit of an inventor by someone who's been injured by a product because of the Patent itself. And if you think about it, there are even Patents on devices that kill like Maxim machine guns and weapons of mass destruction. And in fact, if your invention is is really lethal, the Department of Defense will come in. And they don't stop you from getting your Patent, they just won't allow you to file it outside the United States. It's called a Foreign Filing License. So, that Insulation from Corporate Liability or Insulation of the inventor through the corporation is a consideration, but it's not as critical. Now, the reasons why you as an inventor would choose not to assign your intellectual property, first and foremost you lose control. From then on inside the Patent Office, it's the entity itself that takes the action, and so there's additional paperwork involved and that also means that there are expenses involved with that. So, in addition to the Expense of the Assignment itself and the Recording of the Assignment in the Patent Office, and the Expenses of the Corporate Formalities. So yeah, every year you need to have your meeting of members, your Board of Directors meeting, or some other event, you need to have somebody record those meetings and minutes, you'll have Secretary of State filings, you'll have typically franchise filings, and that's different from being like a franchise or a franchisee's relationship by the way (I know I'm creating a topic for yet another video). But you have additional filings and in the state that the entity operates in, their expenses related to those, there might be something called franchise taxes, and so you have all these expenses that pile up once you assign your intellectual property. So, another potential issue is something called Orphaned Intellectual Property or Orphan IP. Sometimes, we simply call an Orphan Patent. That occurs when there's an entity that has ceased operations, whether it has ran out of money or maybe the investors got into a fight with the Patent holders, the members, or board directors or whatever reason, the entity just stops, and the intellectual property sits there. And what happens to it? Well, if you've never assigned it to an entity as the inventor you still own it; and so, that's something to think about. Because once it's in that corporation, if the corporation goes bust, you may have lost the ability to ever get ahold of it again. Yet another reason is this Potential Extra Layer of Taxation. So, in addition to the state cost and state taxes (franchise taxes we were talking about a little bit earlier), all of a sudden you have federal taxation issues to be concerned about. So, you might have license revenue that you owe taxes on; and eventually, if the entity itself is sold, there might be a tax consequence before there's a payout to you as the inventor. So, there are federal tax issues. And then last but not least (maybe least) is the issue of being a Micro Entity. So, a lot of independent inventors, especially if it's your first Patent Application or you're very early in the Patent Process, and by the way, this doesn't apply to Trademarks or Copyrights, this is just for Patents. There's a status called Micro Entity, and that cuts your federal filing fees by a lot; in some cases 75% off of the fees for what are called Large Entities. Well, it's tougher to maintain a Micro Entity status at the point you've assigned your intellectual property to an entity. So, now let's take a look at the factors that would affect the decision of to assign or not to assign from an investor point of view.